Chaos In The Telecom Sector: An Opportunity For Regulator TRAI To Put Its House In Order
The Indian telecommunications sector has been one of the more visible examples of success of private capital in infrastructure, has contributed significantly to India’s economic growth, attracted foreign direct investment (FDI), and has also been a significant source of revenues to government - with revenue shares, spectrum auctions, license fees all adding up to a significant inflow to government.
Notwithstanding this bright track record, in recent years the telecommunications sector has slowly morphed into one where telecom companies have grown but consumers have been ridden roughshod over – a sector known for empowering consumers is now known for poor quality service, call drops and indeterminate internet access speeds.
Welcome Reliance Jio
So in this backdrop of widespread consumer dis-satisfaction, new competition is not just welcome but necessary. So Reliance Jio’s entry is good from that point of view.
New competition increases consumer choice and hence is positive for consumers, Reliance Jio also marks India’s first fully IP-based network built on 4G LTE and voice calls only on Voice over LTE (VoLTE) – a departure from the legacy circuit switched cellular networks that most telecom companies continue to try and milk.
Without a doubt, Jio represents a seriously disruptive technology strategy in the telecom and technology sector. The pricing and product announcements also represent a major disruptive business model – designed to reset pricing and tariffs, in the short term at least.
Telecom War
Given the size, scale and drama that is always associated with most moves Reliance Industries makes, Jio’s entry has sparked a telecom war. Incumbent telecom companies are, predictably, using interconnection and access to the existing billion customers as leverage to slow or blunt Jio’s plans.
For any new operator, interconnection remains a key requirement to acquire customers through a complete consumer experience and provide seamless access to its consumers. Interconnection and access to a billion existing customers on their networks is what the incumbent operators control and will use to play games to deny Reliance.
Early on I had sensed this coming and urged both the government and the Telecom Regulatory Authority of India (TRAI) to not allow this to become another public ‘dispute’ and slanging match. Sadly it has become that and I had suggested that the regulator call all the telecom companies, new and old, and start intervening to ensure this disruptive entry of JIo is orderly.
It’s good therefore that the TRAI did convene a meeting of the players and urged the warring factions to resolve the issue of interconnection amicably. It’s my view however that interconnection is a complex issue and will need regulatory intervention. Just as it was required in 1997 when a bunch of new cellular operators, including myself with the largest greenfield cellular network then, fought for interconnection from the then incumbent player and government owned telecom company BSNL and the Department of Telecom. They denied it for several months till Justice SS Sodhi, then chairman of TRAI, came up with interconnect regulations in 1997/1998 that stand even today.
Justice Sodhi lost his job almost certainly as a result of this, as the public sector lobby had him removed in 1999. Ironically though, the same private telecom companies are doing today what they fought against two decades ago – denying entry to a new competitor.
I believe these issues have grown into full blown disputes between the incumbent telecom companies and Reliance Jio due to the regulator being behind the curve yet again. It is dangerous to allow companies such as Reliance to make a market entry without clear rules and terms of engagement, because of its long track record of playing fast and loose with ambiguous rules and regulations, as it did in the early 2000 with WLL and CDMA.
Competition must be free and fair and regulatory intervention, pro-active intervention at that, is the way to ensure that it remains free and fair. I have said this publicly that the regulator has waited too long and should definitely have taken cognizance of the fact that an enormously resourced corporation is going to enter the telecom space and hence should have laid down a set of clear, transparent, fair and equitable rules.
Disputes such as this are never good to increase consumer or investor confidence in a sector. That too just before spectrum auctions that depend on banking and capital markets being positive and bullish toward the sector for the government to realize maximum value for spectrum.
It is never a good thing for the health of a sector, from an investor’s point of view, for it to be embroiled in a dispute between two classes of operators leading to name calling and allegations of bias against an independent regulator, one that is a constitutional body, without any substantive proof.
Trial Period Ambiguity
This dispute has also thrown light on the existing regulatory gap on the issue of the trial period. When we think of a new operator entering the sector, we think of a small operator, trying to build its footprint, trying to build its consumer base. But never before has the Indian telecom sector seen such a highly resourced company enter the telecom market and create a disruption of this scale. This area needs decisive and clear intervention by the regulator.
While Jio’s pleas for interconnection do seem legitimate, there is also a case that incumbent telecom companies can make and are making. A company that has an enormous network capacity and has rolled out a big, ‘free’ ‘trial period’ offer to attract customers, cannot expect for it to be construed as a ‘trial period’ because this has a real impact on price, performance and cost for the network it is dumping its traffic on. There are issues to be taken into consideration while defining what a trial period constitutes in terms of operating parameters, loading the networks, a cap on the number of customers a telecom company can give subscriptions to etc. These are the issues that the regulator must answer.
I have maintained consistently that it is possible that, in a dynamic sector like telecom, all the rules haven’t been thought of. But when we anticipate or come across situations where there are no rules, the regulator or the government must quickly move to fill this void to prevent chaos, so that even the disruptive entry of a new entrant is orderly.
For that to happen, TRAI, or if it fails, the telecom ministry, must intervene and frame clear rules for interconnection and that of a trial period, that are fair, equitable and transparent to both the existing telecom companies and the new entrant.
Failure to do so creates chaos and compromises the institutional capabilities of TRAI, and will unnerve investors and consumers. Telecom companies, by bypassing TRAI and writing letters to the government are challenging the institutional architecture of the sector – created over several years and consisting of a clear path that leads to TRAI, TDSAT (Telecom Disputes Settlement and Appellate Tribunal) and courts for dispute resolution.
Rework The TRAI Act
TRAI needs to be ahead of the curve at this stage. There will be even more changes and unforeseen technology and regulatory challenges in the coming years. That, in itself, is a compelling argument to re-look at the TRAI Act, its scope, powers and remit and accountability to stakeholders including consumers and investors.
This is something I have been saying for a long time now. It can help the regulator evolve and grow into a global standards, independent technology regulator, like the Federal Communications Commission (FCC) of the U.S. and the Office of Communications (Ofcom) of the U.K.. A global standards regulator and its work has a direct impact on investor confidence, investment flows, consumer rights and protection.
Rajeev Chandrasekhar is a Member of Parliament and a technology entrepreneur.
The views expressed here are those of the author’s and do not necessarily represent the views of Bloomberg Quint or its editorial team.